Banking and Finance Law Daily Senate Banking hears testimony on cannabis and banking laws
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Wednesday, July 24, 2019

Senate Banking hears testimony on cannabis and banking laws

By Colleen M. Svelnis, J.D.

Proposed legislation that would give legal cannabis businesses access to the banking system was discussed at a Senate Banking Committee hearing, along with witness testimony on the marijuana industry.

The Senate Committee on Banking, Housing, and Urban Affairs has held a hearing entitled, "Challenges for Cannabis and Banking: Outside Perspectives" to discuss the challenges institutions face in banking different parts of the marijuana industry, how marijuana-related businesses operate, and the complications they have faced in accessing financial services. The hearing also heard discussion on proposed legislation, the Secure And Fair Enforcement (SAFE) Banking Act (S. 1200), which was introduced by Senators Jeff Merkley (D-Oregon) and Cory Gardner (R-Colo).

Senator Mike Crapo (R-Idaho), Chairman of the U.S. Senate Committee on Banking, Housing and Urban Affairs, delivered the opening remarks at the hearing. Crapo noted that "In the last several years, many states have used ballot initiatives or referendums that have legalized marijuana in some form, whether for recreational or medical use." He referenced the SAFE Banking Act, stating that it "attempts to ease some of the difficulties resulting from marijuana’s illegal federal status and more lenient state laws." Crapo also stated that "Operation Choke Point was inappropriate and Congress needs to pass legislation to prevent future Operation Choke Point Initiatives." Operation Choke Point refers to a multiple federal agency initiative led by the Obama-era Department of Justice that was intended to "choke off" businesses engaged in high-risk, but legal, activities.

Ranking Member Sherrod Brown (D-Ohio) also spoke at the hearing. In his remarks, Brown stressed how the legal cannabis industry is "one of the fastest growing in the United States" employing hundreds of thousands of people. "Without access to the banking system, legal cannabis businesses are forced to operate in the shadows, dealing in large amounts of cash," stated Brown. "Because of the tension between state and federal law," this can make it harder to monitor transactions and combat money laundering. Brown stated that this results in "extra layers of due diligence that is challenging and costly for many banks and credit unions." He concluded that we "can’t continue to ignore this industry and the thousands of workers and communities it affects."

Thirty-four states, the District of Columbia and various U.S. territories have legal frameworks that allow for either medical or adult-use of cannabis. In addition, another thirteen have a limited medical use program, which includes use of products containing cannabidiol (CBD) or low tetrahydrocannabinol (THC).

SAFE Banking Act of 2019. The Secure and Fair Enforcement (SAFE) Banking Act of 2019 would give legitimate businesses acting in compliance with state cannabis laws access to the banking system, including protection against prosecution or asset forfeiture solely for providing services to a state-sanctioned cannabis-related business.

According to Merkley, there is "widespread support across local government, law enforcement, and industry to provide a safe harbor for cannabis businesses to access financial services." Merkley explained how the lack of availability of financial services for cannabis-related businesses in states where it is legalized "has created a scenario where businesses are forced to operate in all cash, leading to unsafe environments for all parties involved."

In August 2013, then-acting U.S. Deputy Attorney General James M. Cole issued an enforcement memorandum to other U.S. Attorneys outlining Department of Justice enforcement priorities. Former Attorney General Jeff Sessions rescinded this guidance, known as the "Cole Memorandum," on Jan. 4, 2018. In February 2014, the Financial Crimes Enforcement Network issued its own marijuana guidance for financial institutions. According to Merkley, a limited number of state and federally chartered financial institutions operate under the 2014 FinCEN guidance. "While the FinCEN guidance offers some clarity to financial institutions that are offering financial services to cannabis businesses, these institutions are forced to operate in an uncertain legal environment."

Gardner also testified, stating that polling shows that about 65 percent of Americans support legalization of marijuana, 93 percent support medical marijuana, and that majorities of both parties support legalization. Gardner pointed out that more than 95 percent of the population of America lives in a state with laws allowing some form of cannabis.

The SAFE Banking Act would:

  • provide safe harbor for depository institutions and credit unions;
  • create safe harbor from liability and asset forfeiture for institutions and their officers and employees who provide financial services to legitimate cannabis businesses pursuant to state or tribal law;
  • does not require depository institutions or credit unions to provide financial services to a cannabis-related legitimate business; and
  • require depository institutions and credit unions to file Suspicious Activity Reports under the Bank Secrecy Act pursuant to relevant FinCEN guidance.

ABA and witness testimony. Joanne Sherwood, president and CEO of Citywide Banks in Denver, Colo., and chair of the Colorado Bankers Association testified on behalf of the American Bankers Association. Sherwood said the ABA supports the SAFE Banking Act, and she outlined why it’s critical that legal, cannabis-related businesses have access to the regulated banking system. Sherwood stated that "with limited access to banking services available, large amounts of cash remain on-site in many of the cannabis-related businesses which creates significant safety concerns for the communities where they are located."

Sherwood concluded that, "Although the SAFE Banking Act does not cure all of the cannabis-related banking challenges, it would help the 33 states that have legalized cannabis in some form to make their communities safer, collect their taxes, and regulate their cannabis markets effectively."

Other witnesses included Rachel Pross on behalf of The Credit Union National Association, Garth Van Meter, the Vice President of Government Affairs for Smart Approaches to Marijuana, and John Lord, CEO and Owner of LivWell Enlightened Health.

Pross, the Chief Risk Officer of Maps Credit Union in Salem, Oregon, said, "We strongly believe that financial institutions should be permitted to lawfully serve businesses that engage in activities that are authorized under their state laws, even when such activity may be inconsistent with federal law. For that reason, credit unions will continue to support the SAFE Banking Act." She cited statistics showing that cash-only businesses increase the risk of crime and stated that in 2017 and 2018 alone, her credit union "received well over $529 million in cash deposits from cannabis businesses."

Senator Catherine Cortez Masto (D-Nev), questioned Pross about the risks of a cash-based cannabis industry. Cortez Masto, a supporter of the bill, stated that "as a former Attorney General, I do think there is concern because we don’t have a financial system. These businesses are forced to operate on a cash basis."

Van Meter testified about the addiction crisis on behalf of Smart Approaches to Marijuana, a non-partisan, non-profit organization dedicated to a public health approach to addiction and recovery. Van Meter stated that the "fundamental question before us today is whether we want to promote and increase drug use during an addiction crisis or discourage drug use and help people find recovery and healing." Van Meter asserted that "approving the SAFE Banking Act would open more opportunities for money laundering and black-market investors."

LivWell Enlightened Health is a Colorado cultivator, manufacturer, and retailer of cannabis products. Lord, also appearing on behalf of the Cannabis Trade Federation, testified about being forced to operate as an all-cash business. Lord stated that his company has "frequently struggled to obtain and maintain bank accounts with egregiously high fees." He described having to travel to the Internal Revenue Service office in Denver with more than $3 million in cash to pay federal taxes and stated that, "due to the large volume of cash coming in from the industry overall, the Denver IRS office actually had to modify the openings in their teller windows and purchase money counters."

Companies: American Bankers Association; Cannabis Trade Federation; Credit Union National Association; LivWell Enlightened Health; Smart Approaches to Marijuana

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